Quote:
Originally Posted by BrianTheMick2
No, but it depends on what sort of pricing model you'd like to use. Assuming that the OC and HC are not and will not be made available for sale in the near future, you can ignore the value of the assets of the HC. Just calculate the NPV of the expected future dividends you will receive from your ownership stake. If the OC hasn't paid stable or increasing dividends over time to a multitude of owners, then discount the ever-living **** out of those expected dividends.
The basic questions you must ask when presented with such a deal are, "is the CEO kind of a prick?" and "why isn't he just increasing my salary?"
YMMV if you are attempting to pass a class on asset valuation.
Thanks very much for the response!
The CEO is not a prick, however he is loose when it comes to accounting. He is looking to take a step back from the business. It's his intention to sell if he gets a good offer, hopefully within the next 5 years, which would be good for me as well as long as OC sold for a good amount.
I was happy to be on board with that, but he has altered the deal for tax reasons so that I would have to pay tax on the share. Basically I'd be paying 30 cents on the dollar for these shares, with the value determined by a third party.
There hasn't been a valuation yet. CEO and his wife have been telling me that the business is worth a whole lot because of the great cash flow, but I am skeptical because A) OC relies on the assets owned by HC to operate and B) there are significant risks in the business.
My concern as well, is that if the cash flows decreased while the assets were still worth 2MM, such that the NPV of the cashflows was something like 1.7MM, then OC would suddenly be worthless.